What Is Make to Stock (MTS)?
Make to stock (MTS) is a traditional production strategy that is used by businesses to match inventory with anticipated consumer demand. Instead of setting a production level and then attempting to sell goods, a company using MTS would estimate how many orders its products could generate, and then supply enough stock to meet those orders.
Key Takeaways
- Make to stock (MTS) is a traditional production strategy that is used to match inventory with anticipated consumer demand.
- TheMTS method requires an accurate forecast of this demand to determine how much stock it produces.
- To implement an MTS approach a business needs to redesign operations at specific times, instead of keeping a steady level of production year-round.
- The main drawback of the MTS method is that if a forecast is inaccurate a company can be left with too little or too much inventory, which can impact the bottom line.
How Make to Stock (MTS) Works
Themake-to-stock method requires an accurate forecast of demand to determine how much stock it produces. If demand for the product can be estimated accurately, the MTS strategy is an efficient choice for production.
In theory, the MTS method is a way for a company to prepare for increases and decreases in demand. However, inventory numbers and, consequently, production, are typically obtained through the creation of future demand forecasts that have a basis in past data.
Should the forecast be even slightly off, the company may find they have too much inventory and limited liquidity, or too little inventory and unmet profit potential. This possibility of error is the primary disadvantage of using the MTS system for production. Wrong information can lead to excess inventory, stockouts (unavailable inventory), and revenue losses. It can also lead to an inability to meet demand, which reduces income potential. In fast-paced sectors such as electronics or computer tech, excess inventory can quickly become obsolete.
Also, an MTS approach requires a business to redesign operations at specific times, instead of keeping a steady level of production year-round. This regular adjustment can be costly, and the increased costs must either pass on to the consumer or be absorbed by the company.
The typical unpredictability of the economy and business cycles make MTS challenging for any company, but the strategy becomes particularly complicated when a business operates in a sector that experiences cyclical or seasonal sales cycles.
Alternatives to Make to Stock (MTS)
Common alternative production strategies that avoid the downsides of MTS include make to order (MTO) and assemble to order (ATO). Both tie production to demand, but in the case of MTO, the output of an item begins after the company receives a valid customer order. ATO is something of a compromise between MTS and MTO—basic parts are constructed in advance, but a finished product is not created until a valid order comes in.
Example of Make to Stock (MTS)
Manufacturing companies often use the MTS method to prepare for periods of high production. For example, many retailers, such as Target, generate most of their sales in the fourth quarter of the year. For the manufacturing companies supplying these retailers, a majority of their production has to come in the second and third quarters of the year, to prepare for the increases in demand.
Using the MTS production method, let's say that The LEGO Group, maker of the popular LEGO bricks and other toys, looks back at its previous years and surmises, based on past data, that demand will increase by 40% in the fourth quarter versus the third quarter. To prepare, the manufacturer produces 40% more of its toys in July, August and September to meet the demand forecasts for the fourth quarter. Additionally, during the fourth quarter, LEGO looks at past numbers to see how much demand will decline from the end of the year to the first quarter of the new year, reducing production accordingly.
If LEGO is adopting an MTO strategy, it will not increase the production of, say, its LEGO bricks by 40% until and unless Target sent in a larger order for them. If it were taking an ATO approach, it might have the increased bricks made and ready, but wouldn't put together complete packaged kits of them until it received Target's order. This way, the risk of an inaccurate demand forecast is mitigated, as both LEGO and Target share it.
What Are the Benefits of Make to Stock?
One of main benefits of the make to stock (MTS) production strategy is the ability to produce inventory based on anticipated consumer demand. MTS allows a company to avoid having to much or too little inventory.
What Are the Drawbacks of Make to Stock?
In order for make to stock to be an effective strategy accurate forecasts are a must. An inaccurate forecast can result is excess inventory or the inability to meet demand.
What Is an Example of Make to Stock?
The make-to-stock strategy might be used by companies that produce goods that tend to be particularly popular during the holiday season. For instance, a toy manufacturer would forecast consumer demand and produce products accordingly.
The Bottom Line
Make to stock is a traditional manufacturing strategy that matches inventory with forecasted consumer demand. The effectiveness of the MTS approach is entirely reliant on the ability of a company to correctly predict the future demand customers will have for its products. If a forecast misses the mark, a company can be left with excess inventory or not enough, which can negatively impact its bottom line.
FAQs
MTS is a production strategy where products get made without customer orders. In other words, products get made in advance and “stocked” until customers buy them. The main goal of MTS is to have products available when customers want them. This usually means keeping finished goods inventory on hand.
What is a make to stock example? ›
What Is an Example of Make to Stock? The make-to-stock strategy might be used by companies that produce goods that tend to be particularly popular during the holiday season. For instance, a toy manufacturer would forecast consumer demand and produce products accordingly.
What is the meaning of made to stock? ›
Make to Stock (MTS) is a conventional production technique wherein producers produce commodities on a large scale in accordance with anticipated consumer demand. MTS requires companies to keep an inventory of finished goods so that they can be delivered to the customer at the time of purchase itself.
What is the MTO MTS strategy? ›
MTO means that you produce goods only after receiving a specific order from a customer, while MTS means that you produce goods in advance and store them in inventory until a customer orders them.
What is MTS in marketing? ›
Businesses often use the make-to-stock (MTS) manufacturing strategy in which products are manufactured in bulk and stored in warehouses in anticipation of future consumer demand. Only a portion of the generated finished goods is placed on the store's shelves for instant customer purchase.
What is an example of a MTS company? ›
Example of MTS
In another example, a computer manufacturer may make a certain number of computers per month. It does this regardless of whether there are actual orders for them. The manufacturer may then sell the computers to distributors, who sell them to retailers. Retailers then sell the computers to customers.
How does making stock work? ›
Stock, sometimes called bone broth, is a savory cooking liquid that forms the basis of many dishes – particularly soups, stews, and sauces. Making stock involves simmering animal bones, meat, seafood, or vegetables in water or wine, often for an extended period. Mirepoix or other aromatics may be added for more flavor.
What does MTS mean? ›
Noun. MTS (uncountable) (standards, measurement) Abbreviation of metre-tonne-second.. A version of the metric system, that uses as its basis units, the metre (m), tonne (t), second (s), with other units derived from these base units. (television) Initialism of multichannel television sound. (
What are examples of make to order? ›
Understanding Make to Order (MTO)
This includes specialized industries such as construction, aircraft and vessel production, bridges, and so on. MTO is also appropriate for highly configured products such as computer servers, automobiles, bicycles, or products that are very expensive to keep inventory.
How do you make your stock? ›
How to make stock
- Place chicken carcasses/bones into large pan and top with cold water. Heat to a gentle simmer and skim off any protein scum which rises up. ...
- Add vegetables and bouquet garni. ...
- Strain the stock, pour into a clean pan and boil fiercely to reduce the stock and intensify the flavour.
Made - to - Stock ( MTS ) strategies typically use continuous flow, line, or large batch processes in order to . . . focus on cost efficiency and speed of delivery. focus on customization and variety.
What is make to stock process in SAP? ›
In a Make To Stock environment production is triggered BEFORE an actual sales order comes in and any receipt from the production line is put into inventory from where customer orders are fulfilled.
What is the difference between make to stock MTS and make to order MTO )? ›
Make to order works on the basis that a product need not be produced until a customer requires it, but make to stock works on the assumption that a customer will require the product eventually, and thus it should be made beforehand.
What is MTS used for? ›
Mts 0.1% Cream is a steroid medicine which is used on the skin to relieve inflammatory and itchy skin diseases. It also helps in reducing redness, scaling and swelling associated with these conditions.
What is an example of make to stock? ›
For example, a company that manufactures car parts may produce and stock a variety of parts that are used in all types of cars. The company knows that customers will need these parts at some point, so they produce them in advance and store them in warehouses.
What are the disadvantages of make to stock? ›
Disadvantages of Make-to-Stock
Risk of Overstocking or Obsolescence: MTS relies on demand forecasts and historical data to determine production quantities. If the demand forecasts are inaccurate or customer preferences change unexpectedly, there is a risk of overproduction and accumulation of excess inventory.
What are examples of make-to-order? ›
Understanding Make to Order (MTO)
This includes specialized industries such as construction, aircraft and vessel production, bridges, and so on. MTO is also appropriate for highly configured products such as computer servers, automobiles, bicycles, or products that are very expensive to keep inventory.
What is the disadvantage of make to stock? ›
Disadvantages of Make to Stock
There is always the risk that more products will be created than sold. These products will need to be stored, which may lead to damage or spoilage. There is also the risk that this excess inventory will never be sold at all and may even end up costing the manufacturer a disposal fee.
Which model is better known as make to stock? ›
An example of a push-based model is Materials Requirement Planning (MRP). Push-based manufacturing approach is also known as “Make to Stock” (MTS) in which the company does not base its production on actual demand, but on estimated one.
What is the difference between MTO and MTS? ›
Make-to-order is a viable strategy when the products you're manufacturing are complex, with many customizable features for your customers. Make-to-stock is a viable strategy when there isn't much variation between the products you manufacture and little customization on orders.
